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Money Laundering
General Awareness
Module 1
Money Laundering – General Awareness
Module 1 - Agenda
• Introduction
• Money Laundering legislation:
- Internationally
- South Africa
• How ML legislation effects the firm
• Video
• Suspicious transaction reporting
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Money Laundering – General Awareness
Module 1 - Agenda (continued)
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What is money laundering?
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Money Laundering vs. Fraud
Fraudulent activity
Money laundering
• in an undetected manner.
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Origins of laundered money
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Our vulnerability
Includes:
• Advising or assisting individuals to organise their personal affairs
• Helping to set up trusts, companies or other business structures
(locally and offshore)
• Acting as Attorney, conveyancer, trustee, nominee or company
director
• Advice on capital structure, the issue of securities, industrial
strategy, mergers and acquisitions
• Corporate finance / tax planning
• Exchange control advice
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Why authorities concentrate on
money laundering?
• Huge business
• Previously focused on the crime itself
• New approach = attack proceeds of crime
– Follow the money trail to the crime
– Confiscate proceeds
– Deny criminals access to financial institutions & advisors
without increased risk of detection
• Increasing international pressure
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Why should you be interested?
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The international A-ML Regime (1)
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The international A-ML Regime (2)
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Money laundering legislation in
South Africa
• Prevention of Organised Crime Act (POCA)
– effective date: January1999
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Introduction to POCA
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POCA – Offences (1)
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POCA – Offences (2)
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POCA – Offences
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POCA – Penalties and defences
Penalties
• Fine of up to R100 million
• Imprisonment for up to 30 years
Defence
• Reporting suspicions to Financial Intelligence Centre (“FIC”)
• Compliance with FICA
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Introduction to FICA
FICA creates:
• The Financial
Intelligence Centre (FIC)
• Duties for you!
• Duties for the firm!
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Introduction to FICA
Role players:
Any person in business (including all employees)
•
Accountable Institutions (AI’s) – Schedule 1
•
Supervisory Bodies – Schedule 2
•
Reporting Institutions (RI) – Schedule 3
•
Duties:
Reporting suspicious transactions (All role players)
•
Reporting conveyance of cash (> set amount) outside of SA (All persons) – (NB. Not yet operative)
•
Comply with money laundering control measures (AI’s & RI’s)
•
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List of Accountable Institutions (1)
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List of Accountable Institutions (2)
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List of Accountable Institutions (3)
14. Postbank
15. Member of a stock exchange
16. Ithala Development Corporation
Approved Investment Manager in terms of:
17. Section 4 (1) (a) of Stock Exchanges Control Act
18. Section 5 (1) (a) of Financial Markets Control Act
19. Person who carries on business of a money remitter
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List of Reporting Institutions
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Implications for You
if you are an Accountable Institution
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Implications for You
if you are NOT an AI
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FICA – offences and penalties
Offences
• Failure to report suspicious transactions
• Negligent failure to identify suspicious transactions
• Tipping off
• Failure to implement compliance measures
Penalties
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Prevention and Combating of Corrupt
Activities Act
• Report to SAPS
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IT’S HOME VIDEO TIME!
SUMMARY
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Money laundering stages
$ $ Placement
$ $ $ $ $ $ $ $ $ $ $ $ $ $
Convert cash to monetary instruments or
deposit into accounts
$ $ $ $ $ $ $ $
Corporate
Layering
banking
Equities Treasury Debt
Move funds to other financial institutions
to obscure origin.
$ $ $ $
£ account £ account
Integration Legitimate
asset PricewaterhouseCoopers
Acquire legitimate assets or fund
activities.
Funding of terrorism
Distribution
$Distribute
$ funds
$ to$finance$ terrorist
$ $ $ $ $ $ $ $ $ $ $
activities
$ $ $ $ $ $ $ $
Layering Equities
Corporate
Treasury Debt
banking
Move funds to other financial
institutions to obscure link between
$ and destination.
origin $ $ $
£ account £ account
Placement Legitimate
Deposit potentially legitimate assets asset
into the financial system
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FICA – Suspicious Transaction
Reporting -Section 29
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FICA – Suspicious Transaction
Reporting -Section 29(1)
When do you report?
• Where you know or suspect that:
– Firm received / about to receive proceeds of unlawful activities
– Firm is a party to a transaction which:
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FICA – Suspicious Transaction
Reporting Procedure (1)
What is the procedure for reporting? Our procedure
• If you are not an accountable institution, the MLCO will ensure that your
responsibility is discharged in an appropriate manner.
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FICA – Suspicious Transaction
Reporting Procedure (2)
What next?
• Initially report your suspicions to MLCO by phone
• This could save you needlessly filing a report
• Follow up in writing by submission to MLCO of your report on the
PwC Suspicious Transaction Internal
Reporting Form
• Ensure you get a receipt
• The MLCO will investigate all reports
• If he concludes that we have the necessary knowledge or
reasonable suspicion, he will report the matter to the Financial
Intelligence Centre ("FIC").
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FICA – PwC Suspicious Transaction
Reporting Procedure (3)
If you discover or suspect money laundering in the course of your
client work you must report through the firm’s procedures,
independently of any procedures the client might have.
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FICA – Suspicious Transaction
Reporting
DAMAGE TO REPUTATION
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Suspicious transactions & PwC (1)
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Suspicious transactions & PwC (2)
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Suspicious transaction identification
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Suspicious transaction identification
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Suspicious transactions – red flags
General
• Use of many different firms of Attorney’s and advisers for
connected companies and businesses.
• Transactions passed through intermediaries (e.g. attorneys,
PwC) for no obvious purpose.
• Unusually complex group structures where complexity does not
appear to be warranted.
• Accounting systems that fail to give an adequate audit trail.
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Suspicious transactions – red flags
Identification
• Known criminals
• Difficult to establish identity or beneficial ownership
• Reluctance to provide sufficient details
• Clients who you do not meet (3rd party introductions)
• Unknown source of funds / not consistent with profile.
• Referrals from offices / institutions based in countries known for drug
trafficking and production
• New clients – “Walk ins” particular at last minute on trip to SA
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Suspicious transactions – red flags
Transactions
• Large cash transactions – “hot” money
• Lacking commercial logic – does not “make sense”
• Outside of the normal course of business – method of payment / receipt not
usual business practice
• Large payments / loans for unspecified services to consultants, related
parties, employees or government employees.
• Abnormally extensive or unusual related party transactions.
• Unauthorised / improperly recorded transactions.
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Suspicious transactions – red flags
Transactions (continued)
• At amounts that are undervalued or overvalued + double billing
• Unusual amount of cash transactions for substantial amounts / many
small transactions adding up to a substantial amount.
• Transfers from 3rd party bank accounts / 3rd party cheques
• Payments “in error” to be forwarded or cancelled
• Transfers to numbered bank accounts.
• Use of bearer cheques
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Suspicious transactions
Suspicious Transactions
ANY QUESTIONS?
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The Protection of Constitutional Democracy
against Terrorist and Related Activities Bill
(“PROCDATRA”)
A
POCA – Brings in property owned or controlled by terrorists or persons
involved in such activities or financing thereof
FICA
Purpose will include combating of terrorism and related activities
New section 28A – Accountable Institutions have duty to report property
of entities or persons who have committed a PROCDATRA offence in
their possession or control
Section 29 (reporting suspicious transactions) will encompass property
which is connected to a PROCDATRA offence re financing of terrorism,
in addition to proceeds of unlawful activity
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Money Laundering vs. Fraud
Fraudulent activity
• Likely to affect financial statements
• Loss or disappearance of assets or revenue
Money laundering
• Less likely to directly affect financial statements if your client is
being abused for ML purposes
• But, if using company as a front to launder large amounts of
illicit cash proceeds – watch for fictitious sales
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PwC Anti-Money Laundering Database
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PwC Anti-Money Laundering Database
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SA legislation – future developments
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Conclusion – Implications for Firm
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Conclusion – Implications for You
if you are an Accountable Institution
• Threshold Reporting (specified cash transactions **, electronic transfers outside SA **)
** These sections are not yet operative
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Conclusion – Implications for You
if you are NOT an AI
• Must not provide investment advice/ intermediary services if not FAISA registered
• Auditors - be aware of implications on audits of FICA, particularly if your client is an Accountable
Institution
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QUESTIONS?